Lebanon's banks still want Syrian money

Published December 16th, 2012 - 03:00 GMT
Lebanese banks still could reap benefits from Syria once the conflict is over, the head the Association of Banks has said
Lebanese banks still could reap benefits from Syria once the conflict is over, the head the Association of Banks has said

Lebanese banks can reap huge benefits from the Syrian market once a political settlement is reached in the war torn country, the Secretary-General of the Association of Banks in Lebanon said Friday.

“There is great potential in Syria despite the war. The Lebanese banks operating in Syria which have large customer bases can return to the business if the international powers work out a plan to end the fighting in this country,” Markram Sader told The Daily Star in an interview.

There are seven Lebanese banks that have subsidiaries in Syria. These banks recorded impressive results when they started operating in Syria eight years ago, but this trend changed when the country plunged into a devastating civil war 21 months ago.

The war compelled Lebanese banks to substantially increase their provisions for non-performing loans as customer deposits fell sharply.

Only one-third of Lebanese banks’ subsidiaries in Syria are now operational due to the intense fighting that has engulfed most of the country.

“If peace and stability prevail, many industrialists and merchants will go to Lebanese banks for loans to rebuild their business. We should remember that Lebanese banks have built a strong customer base in Syria and naturally these clients will resume business with the lenders,” Sader said.

All of the Lebanese banks operating in Syria say they have no intention to abandon this country despite the war, expressing confidence that the situation will return to normal eventually.

Sader said Lebanese banks are still dealing with the Syrian Central Bank, which is based in Damascus, and revealed that the Central Bank still has sufficient foreign currency reserves.

He added that Lebanese banks only open in safe areas or when fighting subsides: “But of course they are not giving any loans or doing the usual business which they used to perform in normal times.”

Back in the Lebanese market, Sader also emphasized that banks will continue to swap the maturing Eurobonds and treasury bills because they are keen on not letting the state default in the payment of its debt.

“Banks are carrying a very big portfolio of the state and the Central Bank is also holding a huge chunk of T-bills. But as far as new loans, banks may be reluctant to exceed the limit unless there is an urgent need for this,” Sadr explained.

Local banks hold more than one-third of the sovereign treasury bills and Eurobonds and this has increased the debt exposures of these lenders, although the debt-to-GDP ratio fell from 185 percent in 2004 to 135 percent at present.

The Lebanese government has never defaulted in the payment of its state loans and this has earned the respect and admiration of the International Monetary Fund and international rating agencies.

Sader added that banks may be willing to lend the government more if they feel comfortable.

“If commercial banks decline to lend the state more money, the Central Bank will then be obliged to subscribe to more T-bills to inject more cash into the treasury,” Sader said.

Lebanon’s gross public debt is close to $55 billion and economists insist that this size can be managed if the Finance Ministry applies a wise fiscal policy, increases revenues and cuts unnecessary spending.

The fiscal deficit-to-GDP ratio fell from 15 and 16 percent a year ago to 5 and 6 percent today.

“This ratio is very acceptable even among developed states,” he said.

The high liquidity of commercial banks – close to 30 percent of total deposits – and substantial foreign currency reserves of the Central Bank – nearly $35 billion – have enabled the state to tap the Lebanese market for more bonds to finance its needs.

Sader added that the spreads on these bonds are reasonably good and this tempts banks to subscribe to these treasury bills.

“Banks operate on the average spread. They still can make good money from the net spread. The spread has narrowed recently. Instead of making a profit of 10 percent from these spreads, for example, the banks can make a profit of 7 percent. This is still considered income for the state,” Sader said.

Figures released by credit-default-swaps and bond-pricing firm CMA Datavision show that spreads on five-year CDS for Lebanon ended the third quarter of 2012 at 449.

The spreads tightened by 29 basis points from 478 bps at the end of the second quarter, but widened by 2.7 bps from 446.3 bps at the end of the first quarter of 2012.

Sader believed that the growth in assets and deposits of Lebanese banks will be around 7 percent at the end of this year but admitted that this growth was below the results achieved in 2010.

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